Actively tapping

the potential of digital transformation

In the ever-present discussion of the arguments for and against digitalization that has been in progress for some time now in the media, corporations, and in the society, it is important to consider the following: digital transformation has long become an economic and social reality that is rapidly progressing in almost all areas of business and life. Game-changing technologies such as big data & analytics, artificial intelligence, robotics, augmented reali- ty, and blockchain are increasingly playing a significant role in many sectors and business models (see “Editorial”). As such, the question is far less about the pros and cons, and far more about creating the best possible conditions for digitalization and generating the greatest possible benefit. An open-minded, positive and curious attitude provides the ideal foundations for achieving this. After all, the digital transformation opens up vast potential for promising future concepts and increased efficiency, equal opportunities in society, and the preservation of resources in the interests of people and the environment.

Digital orientation starts in the mind

The A1 Telekom Austria Group is at the epicenter of this development. In line with its com- mon purpose “Empowering digital life”, it sees itself as a key pioneer and supporter of the digital transformation in its operational footprint. Its “homework” with a view to that is based on group-wide guiding principles, which focus on agile, trust-based teamwork across divi- sional and country borders. The promotion and enhancement of digital skills (in the spirit of a digital mindset) and internal processes enjoy central importance as a result (see Employees” and “Vision and Strategy”).

Value added in the digital customer experience

as a factor for success

The A1 Telekom Austria Group presents itself to customers as a driver and an ideal, trust- worthy partner for digitalization. It provides both business and private customers with the best possible support for all the exciting opportunities available. The clear aim is to offer an outstanding customer experience with the best service across all interactions and the entire “customer journey” (see “Technology and Innovation”).

The fact that the A1 Telekom Austria Group has long been far more than a provider of con- nectivity and bandwidth plays a crucial role in this context. Building on these solid founda- tions, the Group is continuously expanding its portfolio to include innovative solutions fo- cused on cloud, IoT (Internet of Things), entertainment, smart living, and security solutions.

To safeguard and expand the future-proofness of its network infrastructure, the A1 Telekom Austria Group invested EUR 771 mn (CAPEX) in the year under review in increasingly intelli- gent networks that form the basis for the best possible customer experience.

Concerted group-wirde portfolio development and

market presence

When it comes to innovative products and solutions, the A1 Telekom Austria Group pursues the strategic approach of not reinventing them again and again, but rather to develop them once with group-wide bundled expertise and to rapidly implement tried-and-tested solu- tions in other markets (“One to all”). This applies not only to product development but to internal processes as well.

The market presence is also being harmonized on a group-wide basis: Back in 2017, the A1 Telekom Austria Group had announced its plans to gradually expand the A1 brand to its entire operating business. In the year under review, this objective was accompanied by the rebrand- ing of the Bulgarian and Croatian subsidiaries to A1 and a brand refresh in Austria. These con- stituted further significant steps in the systematic implementation of the single-brand strategy and the strengthening of the perception as a strong international group.

Successful strategic focus on digital transformation

The systematic, results-oriented execution of the corporate strategy with a focus on “Em- powering digital life” (see “Vision and Strategy”) was turned into convincing results in the year under review. The A1 Telekom Austria Group recorded solid growth in terms of both rev- enues and EBITDA (excluding one-off and FX effects as well as restructuring charges) in 2018: Revenues rose by 1.9 %, while adjusted EBITDA (excluding one-offs and FX effects as well as restructuring charges) increased by 3.6 % thanks to the consistent focus on cost effi- ciency. This strong performance was also reflected in the stable free cash flow generation of EUR 384.2 mn despite higher CAPEX paid. The repayment of the EUR 600 mn hybrid bond on February 1, 2018 was financed from cash flow from operating activities and short-term loans. The strong cash flow generation and solid financial ratios prompted the rating agency Moody’s to raise its corporate rating to Baa1.

The number of mobile postpaid subscribers increased by 4.1 % to 16.2 million in 2018, while the number of revenue-generating units (RGUs) in fixed-line business rose by 3.7 % to 6.3 million. At the end of a turbulent year 2018 on the stock markets, the Telekom Austria share closed at EUR 6.64 (–14.1 % year-on-year). This meant the share almost reflected the devel- opment of the sector (Stoxx Telekom: –13.0 %), after having considerably outperformed the latter in 2017. The Austrian lead index ATX lost 19.7 % in 2018. The management board in- tends to propose a dividend for the financial year 2018 of EUR 0.21 per dividend-bearing share to the 2019 Annual General Meeting. The management is expecting revenue growth of around 2 % and capital expenditures of around EUR 770 mn in the financial year 2019.

Active social and ecological responsibility

In pursuing its corporate strategy, the A1 Telekom Austria Group commits itself to the targets of the triple bottom line of sustainable development (“People, Planet, Profit”). The company is also expressly committed to the UN Global Compact and contributes to the Sustainable Development Goals (SDG) of the United Nations. All of this is geared towards securing busi- ness activity in the long run, while at the same time the Group’s management actively as- sumes societal and environmental responsibility. Initiatives of the A1 Telekom Austria Group such as “A1 Internet for All” are also to be seen in this context. With these measures, the Group is making an active contribution to conveying the competencies required for using digital media in the countries in its operational footprint, thereby promoting equal access to information, education, and knowledge in the digital age. When it comes to the preserva- tion of resources, the Group is committed to improving energy efficiency in light of the dy- namic growth in data consumption as a result of digitalization. To this end, it has reduced

its electricity demand per terabyte of transferred data volume by 69 % (see “Social and ecological responsibility”) from 2016 to 2018.

Harnessing the positive momentum of the megatrend

These kinds of initiatives are focused on sustainable objectives, and naturally also on attractiveness for customers. They present the A1 Telekom Austria Group as an ideal partner for digital transformation that assumes pronounced social and ecological responsibility. Simply put, it’s always an issue of how everyone within their own sphere of influence can provide for even better living conditions and well-being for all people and future generations.

The Group sees a systematic and agile focus on the dynamic shift to digital as a key factor in successfully underpinning its future sustainability. After all, digitalization is here to stay. And the accompanying digital transformation will continue to open up attractive development opportunities in various areas of life and work. 2018 clearly demonstrated that the A1 Telekom Austria Group is on the right track with its corporate strategy focusing on a first- class network infrastructure and an outstanding customer experience. We will therefore continue to pursue this approach in the future. We are convinced that this will allow us to continue with our encouraging growth trends in the coming year.

Thomas Arnoldner, CEO

Alejandro Plater, COO

Siegfried Mayrhofer, CFO